24 October 1997 GST/HST Interpretation 11894-13 - Municipal Transit Services

Dear XXXXX

I refer to your facsimile transmission of July 19, 1996, in which you sought a response to four questions regarding the supply of public passenger transportation services under section 24 of Part VI of Schedule V to the Excise Tax Act (the Act). Included as part of the submission were excerpts from XXXXX

Statement of Facts

1. Under XXXXX XXXXX , the council may, by a by-law, organize a public transport service in the territory of the municipality and provide links to points outside the territory.

2. Under XXXXX , no transport service described in XXXXX may be supplied by anyone but a carrier that is a public body providing public transport, the holder of a bus transport permit, the holder of a taxi permit, a group of taxi permit holders or a school bus carrier under contract with the municipality.

3. Under XXXXX a municipality may by by-law, make an agreement with any other municipality for the establishment of an XXXXX t as a municipality in XXXXX or one brought into an agreement by order of the Government.

4. XXXXX Under XXXXX is responsible for organizing public transport services within the municipalities boundaries and to provide links to points outside the territory. The transport service cannot be performed by a carrier as defined in section 1 unless the carrier has a contract with XXXXX

5. Under XXXXX is responsible for:

•   preparing an annual budget for the next fiscal year and transmitting it for adoption to each municipality by XXXXX

•   concluding with one or more carriers, one or more contracts for the performance of the proposed service;

•   submitting to XXXXX applications for subsidies to assist with public transport;

•   setting the terms and conditions for payment of the municipalities shares pursuant to XXXXX

•   examining measures for improving the public passenger transportation service that it intends to organize;

•   setting the various rates for the transportation of users according to the categories determined by it; and

•   deciding of any changes in schedules, routes or rates.

6. Under XXXXX on the subject of financial contributions by the municipalities to XXXXX the cost of operating the transportation service must be entirely defrayed by a balanced fee determined by the Board.

7. Under XXXXX each municipality party to this agreement shall contribute XXXXX for the administrative expenses of XXXXX constitute government funding within the meaning given to this expression in subparagraph 2(a)(ii) of the Public Service Body Rebate (GST) Regulations?

2. When a municipality decides to make available a public transport service within its jurisdiction and, instead of providing it itself, signs an agreement with other municipalities to set up XXXXX which will assume responsibility for this service, can it be claimed that XXXXX is providing a service which the municipality would otherwise be obliged to provide i.e., is there a purchase purpose within the meaning of Technical Information Bulletin B-067?

3. If the payment made by the municipality to XXXXX constitutes a payment made with a purchase purpose within the meaning of Technical Information Bulletin can one nevertheless conclude that the contribution constitutes government funding within the meaning given to this expression in the Public Service Body Rebate (GST) Regulations?

4. Does Example III in Technical Information Bulletin B-067 entitled "A Transfer Payment Provided for Contracted Out Services" apply in the case described above, given the decision of the August 17, 1995 letter addressed to the Prince George Tax Services Office?

Response:

1. The payment made by the municipality to XXXXX XXXXX constitutes government funding within the meaning given to this expression in subparagraph 2(a)(i) of the Public Service Body Rebate (GST) Regulations. It is our view that the purpose of the payment made by the municipality is to financially assist XXXXX in carrying out the purposes of XXXXX i.e., to provide municipal transit services, and not as consideration for supplies made by XXXXX to the municipality.

2. In order for the payments made by the municipalities to XXXXX to qualify as consideration for a purchase, the municipality must be providing the service it is funding and therefore purchasing the service from XXXXX In the particular situation described above, the municipalities have created XXXXX to organize passenger services, contract with carriers for the provision of transport services, apply for provincial subsidies, study possible ways of improving transit services and sets the user fees, schedules and routes. XXXXX prepares its own budget which is subject to municipal approval and sets the terms and conditions for payments by the municipalities. It is our opinion that XXXXX is responsible for providing municipal transit services, as stated above in the response to question 1, and that the municipality is not purchasing this service from XXXXX but rather is making payments to XXXXX to defray XXXXX cost of operating the transportation service.

Should you have any questions, please contact Ms. Enikö Vermes, Manager, Municipalities and Health Care Services at (613) 954-5127, or the undersigned at (613) 954-4280.

Yours truly,

O. W. Newell, CGA
A/Senior Rulings Officer
Municipalities and Health Care Services
GST/HST Rulings and Interpretations

c.c.:      J.A. Venne
E. Vermes
            O. Newell
            N. Minken